We’ll get right to the point: garlic has outperformed gold and stocks in China, becoming the country’s best performing asset this year, according to a Reuters report.
And no, the trigger has not been a sudden fear of vampire squids in China, but the idea the bulb could be used to ward off H1N1 flu, according to Morgan Stanley economists cited by the news wire.
Bear with us because the story does get weirder. As Reuters reported:
That chimes with some anecdotal evidence. The China Daily reported last week that a high school in Hangzhou, a prosperous city in eastern China, had bought 200 kg of garlic and forced students to eat it every day for lunch to stay healthy. “I don’t know about H1N1, but it can prevent ordinary colds,” Zhang Ping, 74, told Reuters at a vegetable market in Beijing. “Take me. I’ve not had cold for many years and every year I buy several dozen pounds of garlic.”
Others have been looking for darker forces behind the surge. China Business News said coal mine bosses — who are often depicted as being both extremely rich and nefarious speculators — had been playing the garlic market, hoarding bulbs and hauling them between storehouses.
Dark forces in the form of rich and nefarious coal-mining speculators? (Sounds like – ahem – vampires to us.)
Nevertheless, there is a serious note to all this garlic madness.
Garlic has been the subject of one of the most fiercely contested Sino-American trade wars of recent times, with American farmers lobbying hard to implement tariffs against cheap Chinese exports to the country .
According to US Agricultural Department figures from 2006, China dominates the garlic market in both production and global exports:
To say China has a monopoly on the global garlic market, therefore, would not be understating matters.
However, before readers (and the French particularly) begin to panic about an upcoming global garlic shortage, it’s worth highlighting that there are also some more mundane explanations for the recent price rally. As Reuters noted (our emphasis):
In some parts of Shandong province, the wholesale price of garlic is up as much as 40-fold. “Too much liquidity in any market can lead to speculation,” analyst Jerry Lou said in a research note this week. “The most recent evidence of asset speculation in China’s commodity markets has been for garlic.”
But a more mundane factor may lie at the root of it all. Garlic prices were extremely low last year, convincing many farmers that it was not worth planting the crop again, a wholesale trader was quoted as saying in the Nanfang Daily. Supply could not keep up with a pick-up in demand from home and abroad, sending prices sky-high, the trader said.
Yi Xianrong, a researcher with the Chinese Academy of Social Sciences, a top government think-tank, said there was no need for panic. “The garlic market is cyclical. Price rises are short-term and they will fall again before long,” Yi told Reuters.
So there you go. In all likelihood, garlic crops will be back up to scratch soon. And China does not have some leading info about a the likelihood of a vampire attack occurring in the not-too-distant future.
Nightmare on commodity street – FT Long Room
Deep 2010 downturn could yet trigger trade war and yuan devaluation – FT Alphaville